Trump on verge of tax victory as US Senate passes bill

Donald Trump's tax reform bill lowers individual and corporate tax rates but critics say it unjustly benefits the rich.

    Republicans say the tax bill will help the US economy and middle-class families [Alex Wong/AFP]
    Republicans say the tax bill will help the US economy and middle-class families [Alex Wong/AFP]

    The US Senate has narrowly approved a sweeping overhaul of the tax law, putting President Donald Trump on the brink of his first major legislative victory, in what his opponents called a "scam" and a "heist".

    After hours of debate, the US Senate passed the motion in the early morning hours on Wednesday, 51-48, with the votes falling along party lines.

    The bill hit a procedural snag - minor changes needed to be made in order for the legislation to comply with Senate rules - and it will be sent back to the House of Representatives for a second vote on Wednesday.

    After easily passing in the House on Tuesday, the Associated Press described it as "a temporary speed bump" as the legislation moves to Trump's desk, where it is expected to be signed into order before the Christmas holiday break.

    The deepest rewrite of the tax code in three decades provides dramatic tax breaks to US corporations, and families at all incomes levels will see their income tax drop starting next year, with the largest benefits going to the rich.

    "This really is a generational defining moment," Paul Ryan, the Republican speaker of the House, said before the vote.

    Last week, the president said the tax plan - the first major change to the US tax code since 1986 - would fulfil a campaign promise to give middle-class Americans a substantial tax cut before the end of the year.

    "We want to give you, the American people, a giant tax cut for Christmas," Trump said on December 13.


    A typical family of four earning the median family income of $73,000 will receive a tax cut of $2,059, Republicans said when they unveiled the final version of the bill last Friday.

    "This is a historic moment for the American people," said Kevin Brady, a Republican congressman from Texas and chair of the House-Senate Conference Committee that drafted the bill.

    "For the first time in 31 years, the House and the Senate have now come together to deliver pro-growth tax reform that will help more Americans across our country keep more of their hard-earned money," he said in a statement.

    Speaking after the vote, Brady added that on January 1, "America will have a new tax code for a new era of American prosperity".

    'Tax scam'

    Democrats, who were opposed to the legislation, said it unfairly rewards corporations and wealthy Americans and would add $1.5 trillion to the federal deficit over the next 10 years while raising taxes on some middle-class families, according to Reuters.

    Some Democratic legislators have called it a "tax scam", while the Democrat-leaning Huffington Post headlined with "The heist is here".

    But Trump said the bill will create jobs, raise wages, "close special interest loopholes", and cut taxes on US businesses. "When government loosens its grip, there is no summit we cannot reach," he said last week.

    The bill has been a major focus for Trump, who has been unable to pass significant legislation since he took office last January.

    To pass, it needed to gain approval in both the House of Representatives and the Senate, where Republicans hold a slim majority.

    Mike Pence, US vice-president, postponed a planned visit to Israel and Egypt because he "is committed to see the tax cut through to the finish line", a spokesperson from his office said. Pence presided over the Senate vote on Tuesday.

    Winners and losers

    Under the legislation, income tax rates will be reduced across all seven individual tax brackets.

    But the bill gives individual citizens and married couples that fall into the highest income bracket - earning $500,000 and up annually - the largest income tax cut, which will drop from 39.6 to 37 percent.

    The corporate tax rate will be lowered from 35 percent to 21 percent, effective January 1.

    The cuts are projected to add about $1.46 trillion to the deficit over the next decade, which is just shy of the $1.5 trillion the bill is allowed to cost.


    According to the Tax Policy Center, an independent analysis centre run by the Urban Institute and the Brookings Institution, households would get an average tax cut of about 1.6 percent of after-tax income thanks to the bill, or about $1,200.

    However the bill will reduce taxes three times as much for business owners than for workers, the centre estimated.

    For example, individuals who make their salaries from wages would get an average cut of 1.5 percent of after-tax income, but "owners of pass-through businesses such as partnerships and sole proprietorships would get an average tax cut of 4.3 percent of their after-tax income".

    A pass-through business is not subjected to the corporate tax rate. Instead, business profits are passed on to the business owner, who reports that income on his or her individual income tax return and pays taxes on it that way.

    That means "a software engineer may pay less in taxes as a consultant than as an employee - even if she does exactly the same work at exactly the same pay".

    "Or, a partner in a real estate development firm might get a far bigger tax cut than a surgeon employed by a hospital, even though their income is the same. This violates a basic rule of good tax policy: that taxpayers with similar situations should be treated similarly," the centre said.

    But while corporations will see their taxes lowered indefinitely, tax breaks for individuals will only remain in place until the end of 2025.

    Other changes

    The bill boosts the Child Tax Credit from $1,000 to $2,000 for single filers and married couples. It will begin to phase out for families making $400,000 annually.

    The bill also eliminates what is known as the individual mandate penalty tax in the Affordable Care Act health plan, also known as Obamacare. The individual mandate imposes financial penalties on people who do not have health insurance, without a valid exemption.


    According to a Congressional Budget Office report released last month, getting rid of the individual mandate would lower the federal budget deficit by $338b.

    But insurance premiums would go up by about 10 percent while the number of people without health insurance would go from four million in 2019 to 13 million in 2027, the report found.

    The bill also eliminates what is known as the alternative minimum tax.

    This tax - which can apply to corporations and individuals - is designed "to capture more income tax from households that would otherwise claim large deductions and have less tax liability", according to a report by the Tax Foundation, a tax policy non-profit group.

    The House-Senate Conference Committee said getting rid of this tax would allow job creators to "focus on growing their business and hiring more workers, rather than on burdensome paperwork".

    Strong criticism

    Democrats have come out strongly against the legislation, but without the votes in either House of Congress, could not do much to stop it from passing.

    On Twitter before the Senate vote, Diane Feinstein, a Democratic senator from California, said the bill was "a disaster" that "raises taxes on millions of middle-class Americans" and "balloons the federal deficit".

    A United Nations rights expert also recently criticised Trump's plan for tax reform, saying it "stakes out America's bid to become the most unequal society in the world" and "will greatly increase" income inequality.


    The bill "is essentially a bid to make the US the world champion of extreme inequality", Philip Alston, the UN special rapporteur on extreme poverty and rights, said in a preliminary report released last week.

    Alston said the bill will "shred crucial dimensions" of the US social safety net and gut social programmes.

    Children's Defense Fund, a nonprofit organisation working to reduce poverty among children, has previously called the proposed tax plan "unjust, expansive and immoral".

    A provision in the bill would also open up a key ecological area in the Arctic to oil and gas exploration, a move that has been condemned by environmental and indigenous rights groups, as well as Democratic legislators.

    "This legislation threatens irreversible ecological destruction of this pristine landscape in order to deliver tax breaks to billionaires," environmental group EarthJustice said in a petition against the tax reform plan.

    "Future generations should have access to enjoy the same public lands that we do. Protecting the wonder of the #ArcticRefuge from drilling is one of many reasons we must fight the GOP's tax scam," Democratic Senator Patty Murray said on Twitter.

    SOURCE: Al Jazeera News


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